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Remote Alaskan Island Faces Economic Peril
Under Proposed Federal Sanctions


July 15, 2004

St. Paul, Alaska - An impoverished Alaskan island community in the middle of the Bering Sea faces an economic catastrophe if the federal government succeeds in pressing proposed economic sanctions against one of the island's major employers. In actions that have troubled the 763 residents of St. Paul Island, the Justice Department has demanded more than $15 million in penalties from the Native corporation that serves the tiny island in

jpg dry dock

Large floating drydock
Photo courtesy TDX
the Pribilofs.

Located midway between Alaska and Russia, the island's economy was already reeling from a federal law banning the fur seal trade and the collapse of crab fisheries.
Now the Justice Department is seeking penalties that officials say could deplete the resources of Tanadgusix Corp., the island's Native corporation also known as TDX. A separate action threatened by the General Services Administration could destroy TDX's once promising business as a federal contractor.    

Created under the Alaska Native Claims Settlement Act of 1971, TDX is the trustee for all the Native land on St. Paul, home to the largest Aleut population in world. TDX also serves as the island's main economic development agency and is the island's third largest employer.  

"The irony of the federal government's proposed sanctions is that the entire case grows out of the island's efforts to better the economic health of its residents by taking title to a World War II-era Navy drydock," said Ron P. Philemonoff, chairman and chief executive of TDX.

The case illustrates how government bureaucrats misunderstood the island's urgent needs for economic development and misled TDX officials into believing that their acceptance of the drydock would be a simple matter. It also shows how Alaska's innovative Native corporations, like Native American tribes in the Lower 48 states, can be forced into complex, costly legal battles when they attempt to provide innovative jobs for their members.

In TDX's case, the controversy was triggered when a competing Honolulu shipyard complained that TDX planned to keep the drydock in Hawaii, where it would become a job-training platform for Aleuts from a remote island where jobs were few.

What was worse, government lawyers initiated actions against TDX without bothering to check the shipyard's allegations against what the Alaska state surplus property officials had told TDX - or what TDX had told the government from the outset. TDX had never planned to take the old drydock back to Alaska and had made that clear to all involved in the vessel's transfer.

"This, sadly, seems to be a case of bureaucrats unchecked, unwilling to offer to Alaska natives the very protections that the government is supposed to extend to Native peoples," said Philemonoff, a longtime leader in the effort to bring better jobs to his fellow Aleuts.  
"It's difficult to understand why the federal government is taking such extreme measures against our corporation," said Philemonoff. "It is as if someone in the federal agencies has a personal vendetta against the Aleut people of St. Paul. All this is because we started to make something out of a piece of scrap."    

The Surplus Drydock

Until TDX took possession of the large floating drydock in May 2001 in Hawaii, it was mothballed at Pearl Harbor. It had been there since 1997 when the Navy decommissioned it after 53 years of service in the Pacific.    

"The state of Alaska officials asked if we would take the drydock after another Native corporation backed out of the deal," Philemonoff said.  "After looking at the proposal, we told the state that, if we could find a good business partner, along with an adequate and deep harbor, we would take the drydock."    

"Even though we had no experience operating a drydock, we ultimately said yes because we found a good partner along with a logical deep harbor outside of Alaska," he said.
"We saw this as a way to provide good marine and shipyard careers for the young people of St. Paul."    

"We never envisioned bringing the drydock to Alaska," he said. "State officials told us they didn't want another drydock in the state to compete with the state-owned drydock at Ketchikan.  We agreed."

"Besides, our harbor at St. Paul is simply too small and remote to ever have been considered for the drydock," he said.  "What made great sense to the state of Alaska officials and to us was to leave the drydock in Hawaii," Philemonoff said. "By placing the drydock in a private yard in Hawaii and having Native Hawaiians and Alaskans working side by side, we saw this as a win-win for Alaska and Hawaii."

"Our people would learn a skill that would give them a good career compatible with our marine lifestyle. It was a way to a better life than they could have had on St. Paul," Philemonoff said.

Troubles in Hawaii

But when the drydock, once called the USS Competent, arrived at the Marisco Ltd. shipyard at Barber's Point in Hawaii in May, 2001, officials of Pacific Shipyards International complained to TDX. They made clear that they did not want the Native corporation working with the competing shipyard, said TDX.

PSI wrote letters filled with misstatements to federal officials and even to TDX's own shareholders on St. Paul, Philemonoff said. This was the start of what has become a long and costly legal battle for TDX.

The Honolulu shipyard and its supporters have sued TDX a total of four times in Hawaii over the drydock. TDX has filed a lawsuit of its own in Alaska, securing through its litigation the right to continue to operate the drydock while efforts to resolve the dispute continue.

Efforts to resolve the costly litigation out of court have failed, largely because federal officials keep insisting on penalizing the Native corporation over what TDX says were poor communications among government agencies over their plans for the drydock.

Two of the lawsuits against TDX were filed under a federal racketeering law in federal court in Hawaii. Those cases were combined and dismissed by a federal judge there in 2003. The shipyard has appealed the dismissal to the 9th U.S. Circuit Court of Appeals.

A group of PSI workers also sued over whether the drydock needed a permit under the Clean Water Act to operate in Hawaii. In January, a federal judge in Honolulu rejected efforts by both sides for summary judgment in that case.

In November, 2001, PSI filed a complaint against TDX and Marisco under the federal False Claims Act, accusing TDX and Marisco of misleading federal officials into believing the drydock would be taken to Alaska.

TDX officials have vigorously denied the charges and say that records and correspondence between TDX and the government clearly show that the company's intent was to leave the drydock in Hawaii and to work with Marisco.    

TDX fought back. The Government forced the TDX to file a lawsuit against two federal agencies involved in the drydock transaction. It accused the General Services Administration and the Small Business Administration for violating the federal Administrative Procedures Act. Although a judge in Alaska issued a summary judgment against TDX, he subsequently took the unusual action of staying his order.

This stay has enabled TDX to continue using the drydock in Hawaii and has prohibited the federal government from repossessing it.  TDX was required to pay $10,000 a month into an escrow account. What happens to the escrow account will be determined later.

On Sept. 26, 2003, however, the Justice Department filed papers in Honolulu to take over PSI's complaint under the False Claim Act and other laws. Noting that individuals suing under the False Claims law may be entitled to triple damages, Justice Department lawyers have said that TDX could face $15 million in penalties - three times the estimated value of the drydock when it was built in 1944.

When asked how the small Native corporation could begin to pay such a massive fine, TDX said a Justice Department lawyer told company officials they should consider selling off some of their land holdings.

As efforts to resolve the case were continuing, the General Service Administration, the federal agency that handles surplus government property, delivered another blow to TDX.

GSA served notice in May that it planned to prohibit Marisco, TDX and its federal contracting subsidiary from seeking any new federal work. That was a serious economic blow to TDX and Marisco, which handles much government work in its shipyard. TDX says that the proposed debarment, although not yet formally in place, has already hurt its ability to secure federal contracting work.

Troubled by the way the government has treated TDX, Rep. Don Young, R-Alaska, has come to the island's aid. He has inserted language in a transportation bill, approved by the House of Representatives on April 2 that would give TDX clear title to the drydock. A joint House-Senate conference committee is now considering the legislation. 

But the new GSA action and the continuing Justice Department lawsuit still could leave the small island's economy in chaos.

A History of Government Injustice

Located 450 miles east of Russia and 850 miles west of Anchorage, St. Paul was uninhabited until the Russians transplanted Aleuts there as slaves to harvest fur seals. That made the Pribilofs the center of a valuable resource when the U.S. purchased Alaska and its outlying islands in 1867.

Within a few years, the revenue generated by the commercial fur seal harvests by the Aleut people was enough to reimburse the U.S. government the entire $7.2 million it had paid to purchase Alaska from Russia. Residents on the island, however, remained in a dependency status well into the 20th Century. 

During World II, the Aleuts were treated harshly once again. The military forced the residents off the island and confined them in Southeastern Alaska for two years. The Government directed the some of the men, including those on active military duty, to return to the island in 1944, to resume harvesting seals. Women and children were kept in camps on the mainland. In 1950, the Aleuts petitioned the government for compensation for the loss of their lands and for back wages for labor. They were not allowed the right to vote until 1964 when the Aleut rights were finally addressed in the Fur Seal Act.
In 1985, Congress outlawed commercial fur seal hunting. Federal officials later imposed fishing restrictions that gave the fisheries resources around the Pribilofs to large companies from Washington State and Japan.

Faced with a dwindling population and a lack of access to the natural resources around the island, TDX has turned to economic ventures off the island as a way of giving the residents a better life - even if it means they will have to leave St. Paul.   It operates hotels in Anchorage and Seattle and provides services on government and military ranges throughout the United States.  TDX and its subsidiaries employ about 40 Aleuts and about 100 others.

"Nature has given St. Paul natural resources to exploit, but the government in its great wisdom has given those resources to others to exploit," said Philemonoff.  

"We petitioned the government to give us fair access to exploit the resources on an equal footing as other Americans. We were denied."

"We have tried to be resourceful, but we have always tried to follow the law in all our ventures.  At best, the government's case against the island is based on misunderstandings by government officials over what we would do with the drydock," said Philemonoff.

He said, "At the worst, it appears that this is another sad, reoccurring story of the Aleut people of the Pribilofs being taken advantage of by a well-connected company that can twist the facts to their benefit and take the resources away for their own benefit."    

"We never misled any one over our intention to keep the drydock in Hawaii," he said. "The federal government has no cause to destroy the one organization that has a mission to bring economic hope to our shareholders on the island," said Philemonoff.    

Even though island residents are working on the drydock in Hawaii, TDX has offered to return it to the federal government as part of a comprehensive settlement in an effort to end the costly legal dispute and prevent further economic harm to the island.    

At a June 29 meeting in Washington concerning GSA's proposal to debar TDX and its small business subsidiary from all federal contracts, Philemonoff said he and others made a comprehensive presentation of facts demonstrating that neither TDX nor its subsidiary did anything wrong and that they both have been responsible government contractors.  During the meeting, he told the GSA debarment official that the drydock has become "a gray elephant" that the island wishes it had never adopted. 

"If it never came to me, I would have been happy," he said, pleading for a quick resolution of the threatened ban on federal work by TDX and its subsidiaries. The GSA has promised a prompt ruling on the action.


Source of News & Photograph:

Tanadgusix Corporation (TDX)
Web Site


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